Generally, cost allocations include identifying the sources of indirect costs such as administration expenses and spreading these costs among cost objects, such as finished goods and and unfinished goods (work in progress), services, sold items, or other objects. Also, cost allocations are used for allocating the incomes or expenses for financial reporting purposes.
The functionality of cost allocations is available only if the Posting on General Ledger option is selected on the Administration > Settings > Service Settings form.
Manual and Automatic Allocations
Generally, allocations are performed automatically by the Month-End Closing service tool. However if needed, you can manually allocate specific costs by creating a corresponding document on the Accounting > Service Tools > Manual Cost Allocations form.
When creating a new manual allocation, you can select a specific account (from the Expenses section on the chart of accounts or from the Work in Progress subsection of the Assets section) and specify the source amount which you need to allocate. Then you can select multiple target accounts and for each specify the amount to be moved to it. The sum of allocated amounts must be equal to the source amount.
You must perform Any manual cost allocations must be performed before you run the period closing process with automatic allocations. The accounts involved in manual allocations, will not be processed by the automatic allocations.
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- Allocate costs: For Cost Allocation Methods with the Cost of Goods / Services option selected.
- Calculate financial result: For Cost Allocation Methods with either the Profit and Loss option or the Close Directly to Profit and Loss option selected.
The Month-End Closing service tool uses the data sources and allocation methods defined by using the following forms:
- Accounting > Master Data > Cost Allocation Methods
- Accounting > See also > Cost Allocation Settings
Allocation Methods
In FirstBIT ERP, there are multiple predefined allocation methods. You can use the Accounting > Master Data > Cost Allocation Methods form to view all the available methods and to add new methods.
Generally, an allocation method defines how to allocate specific source amounts.
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In FirstBIT ERP, most of predefined allocation methods are of the Profit and Loss allocation type. In allocations of this type, the source amounts are distributed proportionally to specific values calculated per business activity. For example, the available predefined methods use the following bases for calculating as the allocation proportion:
- Sales Volumes calculated for business activities ("The To the financial result GL account based on sales volume")Revenues method uses Sales Volumes calculated for business activities (".
- The To the financial result GL account based on revenue")Costs of Goods Sold method uses Revenues calculated for business activities (".
- The To the financial result GL account based on based on cost of goods sold")Gross Profits sold method uses Costs of Goods Sold calculated for business activities (".
- The To the financial result GL account based on gross profit method ")uses Gross Profits calculated for business activities.
Generally, the base or the data for proportion calculation is a structure of the following records: GL Account / Entity / Expense Item or Income Item / Business Activity / Item / Amount.
For more details, see The Bases for Allocations. If the Production module is enabled in your application, you can easily create allocation methods of the Cost of Goods/Services type based on the available predefined data sources.
Allocation Settings
Using the Accounting > See also > Cost Allocation Settings form, you can specify particular GL accounts (more precisely, records structured as GL Account / Department / Entity) to be used as source of amounts for allocation and which allocation methods should be used for these sources. You can use the predefined allocation settings, edit them, or define new settings. If there are more than one settings for the same GL account or account section, the latest settings will be used.
Balances of some accounts you can move without allocation to another accounts - for this you can select the Close Directly to Profit and Loss option and specify the particular target account from the Profit and Loss section on the chart of accounts, COA.
For accounts which balances you want to actually allocate, make sure that a check box for the Close Directly to Profit and Loss option is cleared – this enables the fields you need to specify the allocation rules.
If If you select the Department Wise Allocation option, you can narrow the base by data records with specific department, that is the department specified in allocation source on the Allocation Settings form. With this option selected in case of the To the financial result GL account based on gross profit method, expenses or revenues will be allocated to the Profit or Loss account proportionally to profits earned by this department in each business activity in which it participated.
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When the month-end closing process is being executed, for each record GL Account/ Department / Entity, it checks if there is an available allocation setting (rule). If the rule exists, the process applies this rule. If there is no such rule, the process checks if any rule exists for the section of the GL account and applies this rule. If no rule is found, no amount from this GL account will be allocated.
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For more details on allocation settings, refer to Allocation Settings.
Execution of Allocations
Generally, automatic allocations are executed by the Month-End Closing service tool in two stages:
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If source account's records have some non-empty Business Activityparticular business activities specified, the records with the same Business Activity should be excluded from the base data that will be used for proportion calculation.
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